Michael Hill’s profit falls to $35.2m after inflation and rising interest rates hit sentiment

Consumers pulling back on spending in the wake of an onslaught from cost-of-living pressures has reversed profits for Michael Hill as it seeks to entice more customers.

Jewellery chain Michael Hill says inflation and rising interest rates are hurting consumer spending, after a challenging second half ­resulted in annual profits tumbling 25 per cent.

The retailer, which has more than 250 stores across Australia, New Zealand and Canada, saw its statutory net profit decline to $35.2m in the 2023 financial year, compared to $46.7m in the prior period. Its operating revenue increased 5.8 per cent to a record $629.6m.

Michael Hill managing director and chief executive Daniel Bracken said while trading conditions in the back half of the financial year weighed on earnings, a strong first half led to the company generating the second-highest profit on record.

“There is no doubt that retail conditions have continued to be very challenging in all markets, with sales growth moderating as the group cycles record Q1 sales in the prior year,” he said. “Trading in the second half proved to be much harder, with economic headwinds impacting consumer confidence, and in turn sales.

“Considering the pressures we have experienced on input costs across both diamond and gold pricing, our gross margins held up well.”

Michael Hill’s comparable earnings before interest and tax (EBIT) of $58.9m is down 6.3 per cent, due to inflationary cost pressures and elevated New Zealand security costs.

The $35.2m profit for the past financial year was 21 per cent below market consensus, which Citi analysts said appeared to be due to an unexpected $7m SaaS-related guidance, $2m in Bevilles acquisition costs and $1m of ­restructuring.

However, traders jumped into Michael Hill, with shares closing up 3.3 per cent at 93c on the bullish outlook for the jeweller.

For the first seven weeks of the 2024 fiscal year, the company said group sales were up 1.2 per cent on the prior year, while for the core Michael Hill brand, sales were down on the record start to the previous year.

“When compared to both 2021 and 2022, group sales are up 14.6 per cent and 17.2 per cent respectively,” it said.

The retailer added that it was well positioned for the year ahead with the launch of its new TenSevenSeven brand, the Bevilles store expansion, and product innovations for Christmas.